Geoscience Reference
In-Depth Information
hydroelectric power station, which (it claimed) would replace a coal-
fi red station. It obtained 31,261 tons of CO
2
credits, which it sold to the
Netherlands. The dubious element here is that we have no way of know-
ing whether China would have built this hydroelectric power station
even without the incentive of selling credits. Without effective caps on
country CO
2
emissions, we can never know whether schemes to buy
emissions reduction in poor countries, or to offset our carbon footprint,
are having any net impact on emissions.
Another set of questionable proposals is to subsidize “green energy”
or “green jobs.” The spirit of these proposals is that certain activities are
low carbon and should be encouraged. However, we always need to
look behind the “green” label to determine whether that is really a
cover for politically favored but ineffi cient subsidies such as the one for
ethanol described earlier.
Subsidies pose a more general problem in this context. They at-
tempt to discourage carbon-intensive activities by making other activi-
ties more attractive. One diffi culty with subsidies is identifying the
eligible low-carbon activities. Why subsidize hybrid cars (which we do)
and not biking (which we do not)? Is the answer to subsidize all low-
carbon activities? Of course, that is impossible because there are just
too many low-carbon activities, and it would prove astronomically ex-
pensive. Another problem is that subsidies are so uneven in their im-
pact. A recent study by the National Academy of Sciences looked at the
impact of several subsidies on GHG emissions. It found a vast difference
in their effectiveness in terms of CO
2
removed per dollar of subsidy.
None of the subsidies were effi cient; some were horribly ineffi cient; and
others such as the ethanol subsidy were perverse and actually increased
GHG emissions. The net effect of all the subsidies taken together was ef-
fectively zero!
7
So in the end, it is much more effective to penalize carbon emis-
sions than to subsidize everything else.
Three tentative points emerge from the analysis of alternatives to
carbon pricing. First, alternatives such as regulation are generally more
expensive per unit of emissions reduction than a price-based policy.
